Merv 'More Uncertain Than Ever' Over Economy

1echidna

Generali wrote: »

I use 40% of GDP as a mid-point, and I use mortgages and credit cards as analogies only.

You also use the mortgage as an analogy to say that not so much risk has been taken on. Do you really think that the UK's productive capacity should be put up by the Government as security against Government borrowing despite the Government not owning that property?

How would you feel if your house was reposessed because your local council was unable to pay its creditors?

I suppose if I was not in favour of going to war against Hitler in 1939 I might be very upset at the sacrifices I was expected to make. I might argue it was bad for my health as well as my wealth. In this case we are talking about high taxes on future wealth production or accumulated wealth (not actual repossession of assets?). What is the alternative? A thirties style depression or worse?

Generali

1echidna wrote: »

I suppose if I was not in favour of going to war against Hitler in 1939 I might be very upset at the sacrifices I was expected to make. I might argue it was bad for my health as well as my wealth. In this case we are talking about high taxes on future wealth production or accumulated wealth (not actual repossession of assets?). What is the alternative? A thirties style depression or worse?

Sorry old thing. I don't understand your question. Can you clarify?

1echidna

Just wondering in my incoherent way what would happen if rather than a spiral of increased borrowing we had a spiral of decreasing economic activity for lack of a stimulus package? Merv is concerned about borrowing so I suppose I should be concerned too but I guess if I was living from hand to mouth on benefits or a low wage I might feel more inclined to believe that it was important to maintain borrowing if it meant I had some chance of still having what little I had.

Mr_Mumble

1echidna wrote: »

Just wondering in my incoherent way what would happen if rather than a spiral of increased borrowing we had a spiral of decreasing economic activity for lack of a stimulus package?

The cost of the "stimulus package" ( 2.5% cut in VAT, SDLT starting at £175K and car scrappage scheme) is about £15bn while the deficit for this year is £175bn in an economy with a GDP of £1.2tn, its a rather insignificant drop in the ocean. The government would love a Keynesian-style mass stimulus package but it can't affort it because of artificially high spending prior to the recession.

Personally I'm very worried because, though I don't agree with stimulus, I can see that huge capital infrastructure projects aimed at transport and buildings do have benefits for, perhaps, a century hence. It may not be the best use of capital but it isn't entirely wasteful - this is what was done in the 1930s. Unfortunately now "human infrastructure" in en-vogue: paying someone to be a "civil enforcement officer", "football co-ordinator", "teaching assistant" or "diversity officer". These non-jobs are not going to help our grandchildren get to work cheaper and seem to be a perverse misallocation of labour (e.g. 250,000 teaching assistants have been added to state schools since 1997 but the number of teachers for special needs children has fallen!)

Merv is concerned about borrowing so I suppose I should be concerned too but I guess if I was living from hand to mouth on benefits or a low wage I might feel more inclined to believe that it was important to maintain borrowing if it meant I had some chance of still having what little I had.

If you were living hand to mouth shouldn't you be asking the politicians why they're increasing spending on overseas aid, the EU, World Bank, the BBC and quangos? None of those seem to be as important as allowing the poor to have a few more pounds their pockets, but perhaps I'm crazy!

halight

I under stand that we need to speed our way out.
But i do not belive that Govs should have large overdrfts. In order for us to keep going and to come out of hard times then we should be saving in the good times And im not only talking about the Gov. If everybody had saved some a bit in the good times then thay would have a bit to tide them over for a while. Same with the Gov.

JayScottGreenspan

1echidna wrote: »

Just wondering in my incoherent way what would happen if rather than a spiral of increased borrowing we had a spiral of decreasing economic activity for lack of a stimulus package? Merv is concerned about borrowing so I suppose I should be concerned too but I guess if I was living from hand to mouth on benefits or a low wage I might feel more inclined to believe that it was important to maintain borrowing if it meant I had some chance of still having what little I had.

Merv is concerned about borrowing, but mainly about how we pay it back.

There is a political consensus that borrowing now is unavoidable and necessary.

Some people argue that some stuff can be cut now (there's a hell of a lot of public sector waste, and stupid vanity projects), but only the stuff you'd always choose to cut, if only you had the management skills; so ignoring the lunatic fringes that's a bit of red herring.

As for what happens in a year or two... there is definitely not a political consensus. Vince Cable has been calling for a bit of planning and forethought about what spending gets cut (tax credits, public sector pensions anyone?) and how the books are balanced, and a bit of forethought about how to unwind QE. Merv also thinks that coming up with these answers at the last minute on the back of a fag packet is a bad idea.

As for the govt... well, they definitely do not want to discuss any of these things. Gordon Brown wants the next election to be fought on the slogan 'Tory cuts vs Labour investment', so for the time being he'd rather pretend there won't be any cuts. Engaging in grown up debate about future cuts may be what's best for the UK, but it doesn't fit with Gordon's election strategy, so it ain't gonna happen.

kabayiri

JayScottGreenspan wrote: »

As for the govt... well, they definitely do not want to discuss any of these things. Gordon Brown wants the next election to be fought on the slogan 'Tory cuts vs Labour investment', so for the time being he'd rather pretend there won't be any cuts. Engaging in grown up debate about future cuts may be what's best for the UK, but it doesn't fit with Gordon's election strategy, so it ain't gonna happen.

This definitely seems to be true.

But, frankly, who cares about the saving of any party's political skin?

Our needs, the public and the nation, are what matters.

Setting out a long term prudent plan to address the deficit now will only instil confidence in our abilities as a nation, with our overseas creditors. For it is they who will be bankrolling us in the near future.

If I hated politicians before, it was nothing compared to my contempt for them now.

Generali

1echidna wrote: »

Just wondering in my incoherent way what would happen if rather than a spiral of increased borrowing we had a spiral of decreasing economic activity for lack of a stimulus package? Merv is concerned about borrowing so I suppose I should be concerned too but I guess if I was living from hand to mouth on benefits or a low wage I might feel more inclined to believe that it was important to maintain borrowing if it meant I had some chance of still having what little I had.

Well there are competing problems IMO.

It's all very well the Government borrowing to create jobs for people in the short term. The trouble is that money needs to be repaid from future taxes which will either reduce British people's standards of living in future or reduce the competitiveness of British business in future (or more likely both).

The other problem is 'crowding out'. That is to say that when the Government borrows a pound, that pound then can't be lent to someone to invest or to consume as there are finite funds available. One of the reasons we are having a recession right now (again IMO) is that rapidly rising house prices and falling prices for consumer goods shifted a lot of investment from producing things people consume to housing (eg housing developers on TV with Ms Beany).

My belief is that to get the economy moving again, we need to get business investing in things that will result in output that people want to buy rather than investing quite so heavily in improving the housing stock - both are important but for me too much of the latter was done at the expense of the former.

The problem that the UK faces is that if the Government borrows all the money, how can business invest for the future?

1echidna

I will need to come back to this in the morning. I guess though there is a lot of investment made in the boom that is now standing idle and there would be even more without the gov't borrowing and spending as the recession has biten.

Generali

1echidna wrote: »

I will need to come back to this in the morning. I guess though there is a lot of investment made in the boom that is now standing idle and there would be even more without the gov't borrowing and spending as the recession has biten.

I'm going to the pub tonight (my time) so my responses may be less coherent than you're used to!

I guess there is a balance to be struck between maintaining demand now and destroying future supply as Government in reality borrows from future supply if you subscribe to the 'Keynsian' idea that Governments should prop up demand in hard times (I think it's a misreading of his views but most people don't and what do I know, I'm merely a humble accounts clerk and uni tutor).

Sleep well old thing!